UPDATE 2-U.S. IRS: Let new tax return preparer rules proceed

Jan 24 (Reuters) - In a move to protect taxpayers from
unscrupulous tax return preparers, the U.S. Internal Revenue
Service has asked a federal judge to reconsider his earlier
order that shut down the agency's first attempt to regulate the
tax return preparation industry.

With up to 700,000 preparers potentially affected, the
agency on Wednesday asked U.S. District Judge James Boasberg to
suspend a permanent injunction he issued against the IRS program
last week.

Boasberg, a judge in U.S. District Court for the District of
Columbia, issued his unexpected injunction halting the program
late on Friday, throwing the tax preparation industry into
disarray days before tax season was slated to begin on Jan. 30.

Thousands of tax return preparers - ranging from
independent, "mom and pop" individuals to employees of leading
firms such as H&R Block and Jackson Hewitt -
have paid hundreds of dollars in fees for a program that is now
in limbo.

In response to Boasberg's injunction, the IRS on Tuesday
rescinded registration and testing requirements for preparers
that it had begun imposing under the program. Known as the IRS
Return Preparer Initiative, it was launched in 2011 to regulate
the preparer industry for the first time and to crack down on
abuses of taxpayers' sensitive financial information.

Warning of "substantial disruption to tax administration"
from the sudden shutdown, the agency said it planned to formally
appeal the judge's injunction within 30 days.

The Justice Department, which would have to back any IRS
appeal, has not yet made a decision, the IRS said.

In ordering his halt to the program, Boasberg said the IRS
did not have congressional authority to impose it. His initial
injunction came after opponents of the program filed a lawsuit
in March 2012, contending the IRS lacked the authority.

MILLIONS SPENT, COLLECTED

The IRS said it has already spent $50 million to get the
program up and running. About 100,000 nonprofessional tax
preparers have already registered to take a new competency test,
and the IRS has collected more than $100 million in fees from
the program, the agency said in its court filing.

The IRS warned of class-action lawsuits from tax preparers
and breach-of-contract costs if the program remains shut down.

Dan Alban, an attorney with the libertarian advocacy group
Institute for Justice, representing the three tax preparer
plaintiffs who originally sued over the program, said they will
file an opposition to the IRS's request.

If Boasberg overturns his own injunction now, "it's only
going to make things worse," Alban said on Thursday.

Tax-preparation business Jackson Hewitt said it supported
the IRS and hoped to see the regulations back on track.

"We are certainly in support of all actions to reinforce and
set quality preparer standards," said Mark Steber, chief tax
officer for Jackson Hewitt.